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COLVIN CO (SEP/DEC 20)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › COLVIN CO (SEP/DEC 20)

  • This topic has 5 replies, 3 voices, and was last updated 2 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • June 9, 2022 at 5:41 am #658019
    Frooti
    Participant
    • Topics: 92
    • Replies: 83
    • ☆☆

    The land and buildings will be disposed of at the end of the project and their tax
    exempt value is expected to increase at an annual rate of 30% throughout the four?year life
    of the investment.

    All components for the new bicycle will be produced or purchased in Canvia except for a
    gearing system component which will be manufactured by Colvin Co in the eurozone. The
    cost of acquiring this component from the eurozone is already included in the pre?tax
    contribution estimates, based on a transfer price of €10 per component. The finance
    director estimates a manufacturing cost of €2 per component.

    Please explain meaning of these lines and its impact in answer.

    June 9, 2022 at 8:23 am #658044
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    As far as the cash flows in Canvia are concerned, the gearing system component is a cash outflow. However since the question says that the cost has already been included in the pre-tax contribution estimates, there is no extra flow to consider.

    As far as the cash flows to Colvin are concerned, Colvin will be receiving the remittances from Canvia and will also be getting the contribution from the gearing system components that they are selling to Canvia.

    April 13, 2023 at 7:41 am #682573
    thaarsini
    Participant
    • Topics: 0
    • Replies: 34
    • ☆

    Good day sir, for Colvin question on the special packaging profit we have included the profit (€10-€2)=€8 in home country. Whereas in this question we don’t have to add additional outflow for foreign company as in the question has mentioned it has been included in the pre-tax contribution estimates.
    My doubt is that if the question didn’t mentioned it was included in pre-tax contribution estimates, then we will include €10 as their outflow expenditure right sir?
    For inter-company transaction = for home country is based on the profit earned ; for foreign country is based on the overall purchase price from home country.
    Right sir?

    April 13, 2023 at 4:46 pm #682603
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    What you have written is correct.

    April 14, 2023 at 10:55 am #682632
    thaarsini
    Participant
    • Topics: 0
    • Replies: 34
    • ☆

    Thank you sir 🙂

    April 14, 2023 at 4:22 pm #682645
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 6 posts - 1 through 6 (of 6 total)
  • The topic ‘COLVIN CO (SEP/DEC 20)’ is closed to new replies.

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